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Fry's To Purchase Cyberian Outpost

Fry's, the closely held 19-store specialty chain, said it agreed to acquire the struggling cyber store for about $8 million in cash plus upwards of $13 million in loans. The deal is expected to close in the fourth quarter.

Cyberian will use part of the loan to extricate itself from an existing buyout agreement with PC Connection, from which it received two lines of credit worth as much as $8 million. Besides repaying PC Connection, the loan will be used to pay off Cyberian's secured debt and provide funds for working capital.

Privately held Fry's first agreed to buy Cyberian in July for some $22 million in an effort to establish an e-commerce presence, after taking a 10-percent stake in the company in May. Cyberian had already agreed to a stock-for-stock merger with PC Connection, a direct marketer of computer systems and peripherals, that was valued at about $25 million and set to close during the third quarter.

By August, Fry's did an about-face by withdrawing its bid for Cyberian and agreeing to purchase Egghead.com for about $10 million after the computer and CE e-tailer filed for Chapter 11 bankruptcy protection. Fry's made no mention of Egghead in announcing its buyout of Cyberian.

Fry's purchase of Egghead was slated to close later this month pending bankruptcy court approval, although four other potential bidders, including Buy.com founder Scott Blum, have expressed interest in the business. Besides its purchase of Cyberian, another possible deal killer for Fry's is Egghead's privacy policy, which prohibits it from sharing customer information with outside parties. Fry's wants access to at least 90 percent of Egghead's active customer profiles as a stipulation of the proposed purchase.

Meanwhile, PC Connection is believed to have soured on its acquisition of Cyberian due to a stipulation of its own that the e-tailer's net worth be no less than $14 million at the time of closing. Both parties were reportedly in talks with Fry's prior to its announcement.

The agreement between Fry's and Cyberian was expected to become effective after PC Connection's loans were repaid on Sept. 4. The acquisition was unanimously approved by the boards of both companies, and is subject to certain closing conditions and approval by Cyberian stockholders.

Cyberian president/CEO Darryl Peck said, "We are excited about this opportunity to combine our resources with Fry's Electronics and are looking forward to a long-lasting, successful relationship."

Fry's was founded in 1985 by brothers John, Randy and Dave Fry. Envisioning their business as a "one-stop shopping environment for high-tech professionals," they built the operation from a single 20,000-square-foot location to a 19-unit chain with stores in Arizona, California, Oregon and Texas that range from 50,000 to 180,000 square feet and carry 50,000 SKUs. Annual revenue was about $1.1 billion last year, according to TWICE estimates.

It is unclear how the purchase will impact Cyberian's online joint venture with Tweeter Home Entertainment Group, which sells high-end CE through a branded department at www.outpost.com.